World No.4 Djokovic was twice down a set and appeared physically ill at one point during the third set at Rod Laver Arena on Friday night.
But the 10-time AO champion rallied to post an epic 3-6 6-3 4-6 6-4 6-4 victory in four hours and nine minutes, which finished at 1.32am local time in Melbourne.
He will meet world No.1 Carlos Alcaraz in Sunday's final after the Spaniard beat Alexander Zverev in another epic five-set semi-final.
It will be Djokovic's first grand slam final since his 2023 US Open victory, while an 11th AO triumph would mean the 38-year-old surpasses Margaret Court as the only player to win 25 grand slam singles titles.
Djokovic was a long-shot against Sinner and dropped the first set, but hit back early in the second and ended the Italian's streak of 38 service holds against all opponents in the process.
He also went on to win the set, snapping a run of 10 consecutive sets he had lost to Sinner in the past two years, which included semi-final demolitions at Roland Garros and Wimbledon last year.
But Djokovic struggled physically at times during the third set, and appeared to be sick into a towel at a change of ends, when trailing 4-3.
The rollercoaster continued as the pair traded blows in a high-class contest and Djokovic held his nerve with the match on the line.
He was handed a time violation when serving at 4-3 and deuce in the fifth set, but managed to regroup and hold before serving out the match.
It was a battle right to the end, with Djokovic eventually sealing victory on his third match point.
It was Djokovic's first win over Sinner since November 2023.
